360 Third Street San Francisco, CA 11 11 Total Building Transformation Digital, Media and Tech Powerhouse
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Where Innovation Works… NAREIT Presentation San Francisco, CA November 12, 2013 John Kilroy Chairman, President and CEO Welcome 1 Agenda 303 Second Street, San Francisco I. John Kilroy Chairman, President and CEO, Welcome KRC II. Edwin M. Lee “Everybody’s Mayor, San Francisco Favorite City” III. John Kilroy 201 Third Street, San Francisco Chairman, President and CEO, KRC Update KRC IV. Chris Roeder San Francisco Managing Director, Market Update Jones Lang LaSalle 100 First Street, San Francisco V. Q&A VI. Cocktails and Hors d’ouevres 2 San Francisco Mayor Edwin M. Lee “Everybody's Favorite City” 3 John Kilroy Chairman, President and CEO KRC Update 4 Investment Thesis LOCATION PHYSICALITY YIELD & TIMING Transbay Terminal Housing Options Retail Amenities Companies need high quality space in the best locations to attract and retain their workforces 5 Premier West Coast Franchise December 2009 Annualized Pro Forma 9/30/2013 13% GREATER SEATTLE GREATER Enterprise Value SEATTLE $6.5 Billion 35% 100% NORTHERN SOUTHERN Enterprise Value CALIFORNIA CALIFORNIA $2.6 Billion SAN FRANCISCO BAY AREA 52% LOS ANGELES 12/31/2009 SOUTHERN 9/30/2013 ORANGE COUNTY CALIFORNIA SAN DIEGO LOS ANGELES ORANGE COUNTY SAN DIEGO KRC’s expanded and stronger platform generates significant value Note: Pro forma NOI reflects GAAP NOI for the 9 months ended 9/30/2013 annualized , including a full year’s contribution from acquisitions as well as near-term development projects (690 Middlefield, 331 Fairchild, 350 Mission Street, 555 N Mathilda Campus, 333 Brannan, Crossing 900, Columbia Square, The Heights) and 6 redevelopment projects currently in lease-up. Proud to be a part of the San Francisco landscape KRC’s SOMA Portfolio – 2.7mm SF • $777 mm in acquisitions; 2.1mm SF • $368 PSF basis • $378 mm of estimated development investment KRC’s SOMA Footprint San Francisco, CA 7 7 You Can’t Ignore The 21st Century “Modern” Workforce Decline in Office Space The Millennial Generation per U.S. Worker (Per square feet) 600 225 176 151 1970s 2010 2012 2017E Source: CBRE. KRC’s Commitment to Sustainable Practices . 37% of portfolio is LEED certified . 50% of portfolio is ENERGY STAR certified . Development projects 100% LEED certified 8 Responding to the 21st century “modern” workforce 201 Third Street San Francisco, CA 9 9 “Shaping old into new state of the art” Medium for stimulating environments 201 Third Street San Francisco, CA 10 10 BEFORE… Case Study: 360 Third … AFTER Street What We Purchased? • Former Pac Bell building, built in 1974 as a call center Why We Purchased? • Terrific location - proximity to BART, Caltrain and Muni • Large, efficient floor plates about 68,000 SF Opportunity • Created “South Beach” rooftop deck • Upgraded lobbies and elevators to state of the art • Secure bike storage and showers • Collaborative breakout areas • Parking garage and on-site management office • LEED Gold certification 360 Third Street San Francisco, CA 11 11 Total Building Transformation Digital, media and tech powerhouse 360 Third Street San Francisco, CA 12 12 “What the tenants want” Amenities for today’s workforce 360 Third Street San Francisco, CA 13 13 “Cool in the city” Urban rooftop terrace 360 Third Street San Francisco, CA 14 14 Inspiring creativity 360 Third Street San Francisco, CA 15 15 “Feels a little less like work, with inviting spaces where people eat, chat and relax” 360 Third Street San Francisco, CA 16 16 Chance interactions and creative collisions 360 Third Street San Francisco, CA 17 17 UPDATE ON NEAR-TERM DEVELOPMENT PROJECTS Facilities to Attract and Retain the Modern Workforce 18 KRC’s Current and Near-Term Development Pipeline Total Estimated Total Project Investment Square Feet Current Projects $792 Million 1.4 Million 12% of enterprise value Near-Term Projects Columbia Square (Mixed Use) $670 Million 1.1 Million Crossing/900 10% of enterprise value 333 Brannan $2.3 Billion TOTAL $1.5 Billion 2.5 Million 22% of enterprise value 19 On-Time and On-Budget to Provide Significant Shareholder Value Construction Completion 2013 - 2014 2015 2016 Columbia Square Phase II Crossing 900 Columbia Square Phase I 333 Brannan Creating Significant Shareholder Value Historical average of ~80% leased upon completion 20 Bringing Hollywood back… • $390 million total investment • 675,000 square feet of office, residential and retail Columbia Square – Mixed Use Project Hollywood, CA 21 21 Contemporary work place Columbia Square – Mixed Use Project Hollywood, CA 22 22 A Transit Centric Location • $180 million total investment • 300,000 square feet of office Crossing 900 Redwood City, CA 23 23 An Urban Village Aesthetic. A Whole New Vibe. Crossing 900 Redwood City, CA 24 24 The Future is now… • $95-$100 million total investment • 170,000 square feet of office • LEED Platinum-certified • Building integrated photovoltaics • Living roof • High performance building envelope 333 Brannan Street San Francisco, CA 25 25 Where people interact with nature in an urban environment 333 Brannan Street San Francisco, CA 26 26 It’s a New Era in Office Space • Circles, squares and triangles • 21st century modern workforce • KRC is well positioned to capitalize on opportunities 201 Third Street San Francisco, CA 27 27 Chris Roeder Managing Director, Jones Lang LaSalle “Live, Work, Play” 28 “KRC’s Grand Entrance” 1. Invested the “right” product in the “right” submarkets a) SOMA b) Value-add properties with large floor plates 2. Progressive work environments a) Modern lobbies b) Collaborative space c) Amenities: roof decks, landscaped plazas, bike rooms with showers 3. Expedited delivery and deal process: a) Spec suites ready for occupancy b) Well-oiled machine 29 Supply Continues to Shrink Large Block Availability Trend 10,000,000 120 Large blocks of space have been on the decline Available Space No of Blocks 9,000,000 110 – especially among blocks over 100,000 SF 8,000,000 100 7,000,000 90 6,000,000 80 5,000,000 70 4,000,000 Supply & Demand 3,000,000 60 2,000,000 50 Number of blocks Number of requirements 54 200,000 + 53 2 100,000 - 199,999 10 222 Second Street, 535 Mission Street, 181 7 75,000 - 99,999 5 Fremont Street, 1 Tenth Street, 22 Fourth Street 17 50,000 - 74,999 14 34 30,000 - 49,999 30 Source: Jones Lang LaSalle 30 Tenant Demand Remains Steady into 2013 – Continued Office Expansion Expected Demand by Industry (SF) Technology 1,898,000 Financial Services 1,121,200 Professional Services 647,000 Legal 585,000 Education 541,000 Media/Entertainment 490,400 Advertising/Marketing/PR 350,500 Government 335,000 Historical Leasing Activity (SF) Real Estate 228,000 2013 Projected 11,200,000+ Insurance 133,000 0 500,000 1,000,000 1,500,000 2,000,000 2012 11,131,816 2011 10,786,225 Leasing activity projected to accelerate into 2014 with a number of large deals to close before year-end 2010 8,578,354 2009 6,090,714 - 5,000,000 10,000,000 15,000,000 Source: Jones Lang LaSalle 31 Record Leasing Activity and Large Deals Leading up to and Through 2013 18 of the 35 deals (51.0 percent) San Francisco Completed Leases over 100,000 square feet in the last Tenants +100,000 SF, 1995 - 2013 36 months have been on account of ’11 – ‘13: 35 deals in 36 months technology tenants ’99 – ‘00: 13 deals in 24 months ’06 – ‘07: 15 deals in 24 months 3,000,000 2,575,052 14 2,389,559 2,567,771 13 12 2,500,000 12 10 P 10 2,000,000 9 1,197,984 9 r 1,613,412 8 o 8 1,497,909 j 1,500,000 1,187,152 7 1,230,099 e 6 6 c 6 Square Square Footage 899,487 827,199 5 5 t Number of deals 1,000,000 4 473,007 873,314 e 758,634 4 464,000 d 244,552 312,000 3 3 500,000 155,000 153,000 115,000 2 2 2 1 1 1 0 0 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 Year Total SF Number of deals completed Source: Jones Lang LaSalle 32 Absorption Driven by Technology Industry - Expected to Continue Year-end 2013 absorption expected to be 1.0 M SF+ Technology continues to lead net absorption Source: Jones Lang LaSalle 33 John Kilroy Chairman, President and CEO Conclusion 34 Focused on High-Growth, Best Performing West Coast Markets Centers of innovation and creativity Greater Seattle Fremont Lake Union, Seattle Gateway, coastal markets Critical mass of knowledge 100 First Street, San Francisco companies San Francisco Bay Area Highly educated Tribeca West, Los Los Angeles workforce Angeles San Diego Great quality of life Kilroy Centre Del Mar, San Diego 35 Q&A 36 Where Innovation Works… 37 .